Sales Tax Battle No. 2

Having voted on the income tax sections of its billion-dollar revenue bill (TIME, May 30), the Senate last week continued its long wrangle over inserting tariff provisions. Oil and coal duties had been adopted. Log-rolling logic and gentlemen's agreements now necessitated doing something for lumber and copper. Nebraska's Norris tried to break in with a revival of the Export Debenture to benefit farm products, insisted that some form of farm aid must go into the bill if tariff features were being added. He was brushed aside by a vote of 46-10-23. Lumber was voted (36-10-24) additional protection of $3 per 1,000 board feet. Copper was given a tariff of 46 a Ib. by a vote of 45-to-22. The Senate then proceeded to:

P:Approve the House excise tax on trucks (2%), raising the House rate on pleasure cars to 4%, parts 2%.

P:Approve, with slightly different rates, the House excise taxes on cosmetics, jewelry, sporting goods, cameras, firearms, mechanical refrigerators, matches, candy, soft drinks, motorboats, yachts.

P:Approve a 2% excise tax on chewing gum, 2 1/4% on tires, 4% on inner tubes, special taxes on communications (exempt: news dispatches), real estate conveyances, stock & bond issues, safe deposit boxes, oil pipeline tolls.

P:Amend the House theatre admissions tax to provide an exemption of 40%.

P:Approve the Finance Committee's increase in second-class mail rates (upped 1/2-c- to 3-c- zone) and first-class rates (upped 1-c-).

P:Reject a special 25% tax on admissions to horse and dog races.

Revenue estimates now added up to some 940 millions, at least 50 millions short of a Budget-balancing total. But with every day's delay the financial condition of the country was growing worse. From day to day the Treasury's revenue estimates were shrinking. It became apparent that some broad new base of taxation might have to be sought. It also became apparent that some of the voting for stiff "nuisance taxes" was for the purpose of exciting potent public protest and driving the Senate toward some other tax. What tax this was, everyone knew--a Manufacturers' Sales Tax such as had been beaten in the House.

Not since the Civil War has the U. S. had a general sales tax. Last September Pennsylvania's Senator Reed proposed a .5% tax on all retail sales, calculated it would bring the Government two billion dollars a year. President Hoover did not favor it. In March a 2.25% sales tax (estimated revenue: $595,000,000) was presented to the House by the Ways & Means Committee, damned as a measure to rob the poor, defeated 223-10-153.

Last week Senator Reed voted aggressively for each & every "nuisance" tax item that appeared. In addition, he got back of the second-class postal rate increases. What he expected soon happened. The potent motor, radio, cosmetics, and candy lobbies whose products had been singled out for taxation sent up a wounded howl. The proposed tax on bank checks trod on the toes of the American Bankers Association. Publishers, many of them on failure's brink, protested the postal rates.

With an estimated 45 votes behind him, Massachusetts' Walsh, never before a Sales Tax champion, suddenly brought forth a measure to make the second-class postal increase unnecessary (a bid for Press support) and tax all manufacturers alike. He proposed a 1.75%, general manufacturers sales tax, conservatively estimated to yield $325,000,000, the law to expire July 1, 1934. Exempt would be food, cheap clothing, agricultural products, workmen's tools, tobacco, nonproprietary medicines, periodicals.

"The country now understands the issue," said Senator Walsh. "A low tax widely distributed or high taxes narrowly distributed."

Support mustered quickly behind the Walsh proposal. A concerted Sales Tax drive was on. President Hoover called in 38 newspaper publishers, spoke to them 45 minutes, asked them if they would sponsor a Sales Tax (see p. 11). Their affirmative answer was visible next day in front-page headlines throughout the land.

In the Senate, opposition developed quickly. Led by Messrs. Couzens, La Follette and Connally, 45 Senators (35 Democrats, 20 Republicans) signed a round-robin to "vote against any and every form of a general Sales Tax in the pending bill."

Democratic Senators were furious at the President's conference with the 38 publishers.

"These newspaper publishers come to the White House to a secret and silent conference," cried Texas' Connally.

"When the newspaper editor, a public official or anyone else puts his feet under the mahogany with the President, his backbone suddenly becomes limber."

"I just want to say to the Senator from Texas," interrupted Virginia's Glass, a publisher himself, "that the bacon & eggs at the W'hite House taste just the same to United States Senators as they do to a newspaper man."

On Memorial Day an ill-tempered Senate celebrated by lashing the Sales Tax movement to its knees. Senator Harrison paraded on the floor the list of 55 Senators vowing to vote Nay. Desperately supporters of the tax bill lay about them right & left, seizing upon various excises to help push the total of the bill nearer the balancing figure, among them taxes on stock & bond transfers, limitations on income tax deductions.

Next morning Secretary Mills warned the Finance Committee that the bill was still $285,000,000 short of balancing, urged passage of: 1) a "manufacturers' excise tax along the lines of Senator Walsh's . . . amendment;" 2) the Connally amendment to raise $70,000,000 by restoring 1922 income tax rates. Straightway the Senate passed the Connally amendment, had scarcely ended its vote when President Hoover unexpectedly appeared at the Speaker's rostrum (see p. 11).

Without referring directly to the Walsh amendment the President advocated "an extension of the special manufacturers' excise taxes to a general manufacturers' excise tax with exemption of food & clothing." Such a measure, he cautioned, was not to be confused with a general sales tax because, he said, the former could not be "pyramided" and ultimately loaded upon the consumer. Somewhat confused by the President's choice of terms, observers thought that what he was asking for was a wider application of the Walsh amendment.

If the Finance Committee was impressed by the President's appeal for broad-scale tax legislation, it did not demonstrate the fact by its next action, which was to approve a specific tax of 1-c- a gallon on gasoline.

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